The most common sources are your own savings, gifts from family, and first-time buyer programs
Most people fund a down payment through a combination of three routes: money they have saved, money given to them by family members, and programs designed to help first-time buyers. The mix depends on how much you have saved, whether your family can help, and which programs your state or local government runs. Some people use all three; others rely on one.
The amount you need varies. Conventional loans typically require 3 to 20 percent of the home price. Federal Housing Administration (FHA) loans allow as little as 3.5 percent. VA loans and USDA loans, if you meet their requirements, may require zero down. A $300,000 home with a 5 percent down payment means you need $15,000 upfront.
The source matters because lenders verify where the money came from. They want to confirm you did not borrow it (which would increase your debt and lower your approval odds). They also want proof the money has been in your account for a set period, usually two months. This is called "seasoning" the funds.
Key Takeaways
- Lenders require proof that down payment money has been in your account for at least two months and that you did not borrow it from another source.
- Family gifts are allowed but must come with a signed letter stating the money is a gift, not a loan you have to repay.
- First-time buyer programs run by state housing finance agencies, nonprofits, and some employers offer grants or low-interest loans that count toward your down payment.
- Employer retirement accounts (401k) and IRAs allow withdrawals for first-time home purchases, though taxes and penalties may apply depending on your age and account type.
- Down payment assistance programs vary by state and income level, so checking your state housing finance agency website is the fastest way to see what is available where you live.
Saving money yourself and timing your purchase
The most straightforward path is saving the amount you need before you start the mortgage process. This takes time but gives you full control and avoids the complexity of proving the money came from somewhere else.
A practical approach: calculate your target down payment, divide by the number of months until you want to buy, and set up automatic transfers to a separate savings account. If you need $20,000 in two years, that is roughly $833 per month. Keep this money in a regular savings account, not investments, because lenders need to see the balance stable and accessible.
Once you have saved the amount, leave it untouched for at least two months before you apply for a mortgage. Lenders will ask for bank statements covering the last 60 days. They are looking for the money to sit there without large unexplained deposits or withdrawals. If you receive a bonus or tax refund during this period, document it with a pay stub or tax return so the lender knows where it came from.
Family gifts and the paperwork required
If a family member gives you money for a down payment, the lender will allow it—but only with a signed gift letter. This letter must state that the money is a gift, not a loan, and that the giver does not expect repayment. Without this letter, the lender will treat the deposit as a loan, which increases your debt-to-income ratio and may disqualify you.
The gift letter should include the giver's name, relationship to you, the amount, the date, and a statement like: "I am giving [your name] $[amount] as a gift for the purchase of a home at [address]. This is a gift and I do not expect repayment." Both you and the giver sign and date it. Your lender will provide a template or specific wording they require.
The money must still come from the giver's own account. The lender will ask for the giver's bank statements showing the funds were available before the transfer. If the giver had to borrow the money themselves, the lender will likely reject it. After the gift arrives in your account, it still needs to sit for two months before you apply, just like savings.
There is no limit on how much a family member can gift you for a down payment. The IRS gift tax rules (which allow up to $18,000 per person per year in 2024, though this changes annually) do not apply to down payment gifts—those are separate rules about lifetime giving. Your lender cares only that the money is genuinely a gift and that you can document it.
First-time buyer programs and down payment assistance
Most states run down payment assistance programs through their housing finance agency. These programs offer grants (money you do not repay) or low-interest loans that count toward your down payment. Some cover the full down payment; others cover part of it. Income limits apply, and they vary by state and program.
To find programs in your state, search "[your state] housing finance agency" or visit the National Council of State Housing Agencies website, which lists every state agency. Once you find your state's agency, look for programs labeled "down payment assistance," "first-time homebuyer," or "down payment grant." Many states run multiple programs with different income caps and requirements.
Common programs include the Community Development Block Grant (CDBG), which cities and counties administer, and state-specific programs like California's CalHFA or New York's Homes and Community Renewal. Some programs require you to complete a homebuyer education course before you can receive funds. Others require you to work with a nonprofit housing counselor. These are not obstacles—they are part of the program design and usually free.
Nonprofits also run down payment assistance. Organizations like NeighborWorks America and local community development corporations offer grants or forgivable loans. A forgivable loan means you do not pay it back if you stay in the home for a set period (often five to ten years). Search "[your city] nonprofit down payment assistance" to find local options.
Employer programs and retirement account withdrawals
Some employers offer down payment assistance as an employee benefit. This might be a grant, a loan at below-market rates, or a match program where the employer matches what you save. Ask your HR or benefits department whether your employer has a homebuyer program. These are less common than other benefits but worth checking.
If you have a 401(k) or similar employer retirement plan, you may be able to borrow against it or withdraw funds for a first-time home purchase. A 401(k) loan lets you borrow up to $50,000 or half your vested balance (whichever is less) and repay it over five years. You pay yourself back with interest, so the money stays in your retirement account. If you leave your job, the loan typically must be repaid within 60 days or it becomes a taxable withdrawal.
A withdrawal from a traditional IRA for a first-time home purchase allows up to $10,000 lifetime and avoids the 10 percent early withdrawal penalty if you are under 59½. You still owe income tax on the withdrawal. A Roth IRA lets you withdraw contributions (not earnings) anytime without penalty or tax, but earnings withdrawals for a home purchase still trigger the 10 percent penalty if you are under 59½ and the account is less than five years old.
Before you tap retirement savings, talk to a tax professional or financial advisor. The tax hit can be substantial, and you lose years of compound growth on that money. Retirement withdrawals should be a last resort after you have exhausted savings, gifts, and down payment assistance programs.
Seller concessions and closing cost assistance
In some markets, a seller will contribute toward your closing costs or down payment as part of the purchase agreement. This is called a seller concession. The amount varies by loan type and market conditions. FHA loans allow up to 6 percent of the purchase price; conventional loans typically allow 3 percent. VA loans allow up to 4 percent.
A seller concession does not reduce the purchase price—it reduces what you pay out of pocket at closing. If you negotiate a 3 percent concession on a $300,000 home, the seller contributes $9,000 toward your closing costs or down payment. You still owe the full $300,000 mortgage, but your cash requirement drops.
Concessions are most common in buyer's markets (when there are more homes for sale than buyers). In a seller's market, sellers rarely offer them. Your real estate agent can tell you whether concessions are typical in your area and whether the seller is likely to agree.
What happens if you do not have enough saved yet
If you need a down payment but do not have the full amount, you have several options. The first is to delay your purchase and continue saving. This is the safest route because it avoids taking on extra debt or tapping retirement accounts.
The second is to look for a low-down-payment loan. FHA loans require only 3.5 percent down. USDA loans (for rural properties) and VA loans (for veterans) may require zero down. Conventional loans with 3 percent down are also available, though they come with mortgage insurance, which increases your monthly payment. These loans have higher interest rates or insurance costs to offset the lender's risk, so compare the total cost over the life of the loan.
The third is to combine multiple sources: your savings, a family gift, a down payment assistance program, and a seller concession. This layered approach is common and legitimate. A lender will accept all four as long as each source is documented and the gift letter is signed.
Frequently Asked Questions
Can I use a credit card or personal loan for a down payment?
Lenders will reject a down payment funded by credit card or personal loan because it increases your debt-to-income ratio and shows you are borrowing to buy. They want to see the money came from your own resources or a gift. If you use a credit card or loan, the lender will see the new debt on your credit report and may deny your mortgage application.
How long does the money need to sit in my account before I apply?
Most lenders require two months of bank statements showing the down payment funds in your account. This is called the seasoning period. If you receive a large deposit during this time, document where it came from with a pay stub, tax return, or gift letter so the lender knows it is legitimate.
What if my family member lives in another country?
A gift from someone outside the United States is allowed, but the lender will need proof the money came from a legitimate source. This usually means bank statements from the giver's foreign bank account showing the transfer. The process takes longer because the lender may need to verify the foreign bank details, so plan extra time if this applies to you.
Do I have to use all my savings for the down payment?
No. Lenders want to see that you have reserves—money left over after the down payment and closing costs. Having reserves shows you can handle unexpected expenses and makes you a lower-risk borrower. A common guideline is to keep two to three months of mortgage payments in savings after closing.
Can I get a down payment grant if I already own a home?
Most down payment assistance programs are limited to first-time homebuyers. Some define first-time as not having owned a home in the past three years. A few programs serve repeat buyers or specific groups like teachers or healthcare workers. Check your state housing finance agency website for programs that match your situation.